NZD helped to highs by strong AUD, weak USD
The NZD opened up lower yesterday then spent the morning hovering around the 0.7200 level as strong US payroll data on Friday lent support to the USD. Focus late morning turned to the Q1 QSBO survey where business confidence levels fell 15% but inflation expectations increased. The currency fell slightly on the news but recovered quickly, the market reaction was fairly muted. The NZD then edged higher through the remainder of the local session, helped up by a surging AUD to a high of 0.7258, the highest level since May 05. Overnight USD weakness based on weak consumer sentiment, a trade dispute with China, and further concerns over sub prime mortgages pushed NZD up through 0.7300. We open up around 0.7290 this morning.
AUD surges higher on interest rate speculation
The AUD opened up under pressure yesterday following the strong US labour data but moved steadily higher throughout the day pushing back through 0.8200 to a high of 0.8243 in the local session, the highest level since 1990. Support for AUD came by way of M&A news and strong domestic data increasing the likelihood of a rate hike as early as next month. The AUD also hit a decade high versus JPY as appetite for the carry trade continued. The currency continued its rally during offshore trading, gaining momentum on USD weakness and pushing through 0.8260. We open up slightly lower around 0.8250 this morning.
Housing worries and protectionism dent USD
The brief USD rally inspired by the strong NFP number started to erode as the market lost it??™s appetite for dollars. Some put this down to the US taking China to the WTO on software piracy whilst others put it down to soft mortgage demand data. The euro made a strong push through 1.3400 to reach a two year high of 1.3456 before easing back slightly to open this morning around 1.3430. The euro also hit a record high of 160.10 against the yen after the BoJ left interest rates on hold at 0.5% as expected, and gave no sign that Japanese rates will rise anytime soon. The USD initially fell against the yen but managed to avoid triggering stops around 118.75 and recovered well enough to finish the day above 119.00. GBP also benefited from the weaker USD to climb from a low of 1.9614 seen during the Asian session to a high of 1.9751.
The Bank of Japan left rates unchanged today, as widely expected. The Bank's February rate hike bought it substantial time. With important local elections through this month, the upper house poll in July, and prices falling in the latest CPI release, today was never going to deliver another hike. Our view is that with pessimism surrounding the US economy likely to diminish, prices to regain a footing above zero, and the expansion to remain entrenched, we anticipate rates rising again late in Q3.
US consumer sentiment falls sharply in April. The first of the monthly confidence reports, from IBD-TIPP, fell from 50.8 to 45.5 in April. That is a steep fall, worth more than 10%. We can speculate that housing market turmoil, recession talk and higher gasoline prices were factors at play; the breakdown showed the economic outlook question falling the steepest, down 16%. This index does not garner much attention, but recently it has tended to at least pick the direction of the more closely watched Uni of Michigan consumer sentiment report, which is due Friday.
Fedspeak: Fed Governor Fred Mishkin said that US inflation remains too high and the Fed ???would have to do something about it??? if inflation did not slow. However he expected that inflation would moderate.
French industrial production jumped 1.1% in Feb. The rise was led by autos but broad-based across all major sectors except for energy. Recall that the German IP data for Feb released last week were also strong.